New twists in suit over CFPB's $8 late fee favor credit card industry

Samuel Corum/Bloomberg

The topsy-turvy litigation involving the Consumer Financial Protection Bureau's $8 credit card late fee rule is now squarely in the hands of the 5th U.S. Circuit Court of Appeals, which is widely expected to side with business groups that are fighting over $10 billion in annual revenue.

A federal judge in Texas had ordered the lawsuit be moved to the U.S. District Court for the District of Columbia last week. But on Wednesday, a judge in that district terminated the case without prejudice.

"This order should not be read to express any view on the transfer question, which has not been presented to this Court to decide," U.S. District Judge Amy Berman Jackson wrote. 

With the D.C. Circuit no longer involved, many legal experts think the credit card industry will prevail in getting an emergency stay to stop the $8 late fee rule from taking effect on May 14.

"The 5th Circuit has taken control and will issue a preliminary injunction," said Christopher Willis, a partner at Troutman Pepper, who is not involved in the case. 

The CFPB's late fee rule, which was finalized on March 4, applies only to the 35 largest credit card issuers. It would eliminate $10 billion a year in late fee revenue by cutting credit card late fees to just $8. Currently, customers are charged $32 for the first violation and $41 for subsequent late payments. 

Under the rule, issuers would still be able to charge more than $8 for late fees but only if they could prove to the bureau that higher fees are necessary to recoup costs associated with late payments. Credit card issuers bring roughly $14 billion a year in late fee revenue. 

The case, Chamber of Commerce v. CFPB, is already notable for the massive number of docket entries — at 73 and counting. The flurry of legal moves and countermoves are an indication of the financial stakes. 

"There's an enormous amount of money on the table," said Joe Lynyak, a partner at the law firm Dorsey & Whitney.

The 5th Circuit abruptly took control of the case on Friday despite an earlier ruling by Judge Mark T. Pittman of the U.S. District Court for the Northern District of Texas, who declined to grant an emergency injunction and instead transferred the case to the D.C. Circuit. He cited a busy docket in making the move.

The 5th Circuit is widely viewed as hostile to the CFPB and favorable to industry since it ruled in 2022 that the agency's funding structure is unconstitutional. That separate case, CFPB v. Community Financial Services Association of America, was appealed to the Supreme Court, which heard oral arguments in the case last year and is expected to rule by the end of June. 

"It's not a sure thing that the [$8 late fee] rule will be permanently stayed after the CFSA case shakes out in the Supreme Court, but it will likely be temporarily stayed," Willis said.

If the Supreme Court sides with the CFPB, as many experts expect, the $8 late fee rule then would still have to be decided on its merits by the District Court in Texas. The trade associations likely would ask for another emergency injunction to keep the rule from going into effect. 

Regulation and compliance

Fifth Circuit keeps CFPB $8 late fee case in Texas

April 8, 2024 11:52 AM

The litigation in the case took a surprise turn in mid-March when the CFPB accused the business trade groups of judge shopping. The bureau claimed that the Fort Worth Chamber of Commerce lacked standing in Texas because Synchrony Bank — a $106 billion-asset bank based in Stamford, Connecticut, and chartered in Utah — had only recently joined the business trade group in order to file the case in Texas. 

The plaintiffs that sued the CFPB — including the U.S. Chamber of Commerce, American Bankers Association and Consumer Bankers Association — have alleged that the agency engaged in regulatory overreach, lowered late fees to $8 using flawed data and issued the rule quickly without going through the normal rulemaking process. Further, the business groups claim the CFPB did so largely for political reasons to aid President Joe Biden ahead of the 2024 election. 

The Biden administration has decried "junk fees," and President Biden heralded the CFPB's late fee rule in his State of the Union address as an example of how the administration is trying to cut costs for average Americans who are struggling with high inflation. Bankers have been deeply offended by the suggestion that fees on bank accounts and other services are mere profiteering, assessed without regard to the underlying costs or services.